On July 26, 2019, the Swiss Federal Supreme Court rendered a
groundbreaking judgment in the field of administrative assistance
in tax matters. Reversing a 2018 ruling of the Swiss Federal
Administrative Court, the Supreme Court decided that information
regarding tens of thousands of UBS account holders presumed to have
tax residence in France could be transmitted to the French tax
authorities.

The decision was rendered by a panel of five judges, who held
public deliberations—a rare occurrence at the Supreme Court
that only takes place when the panel's opinions are
divided—before approving the exchange of information by a
narrow vote of 3-2.

The judgment may well turn out to be a turning point in tax
administrative assistance practice in Switzerland. Even before the
Supreme Court's written reasoning becomes available, the
decision has already given rise to concerns among the banking
community that foreign tax authorities will be able to submit broad
requests to the Swiss Federal Tax Administration (FTA) without
having to demonstrate concrete indications of alleged tax
transgressions by account holders at Swiss banks.

Indeed, the judgment risks to undermine the concept of
''foreseeable relevance'' and the prohibition of
fishing expeditions in tax administrative assistance. In addition,
with the new decision, the distinction between individual requests
and group requests has become even blurrier. The decision also
raises the question of how individual and group requests will be
distinguished from pure fishing expeditions in the future.

Background

In May 2016, the French tax authorities sent an administrative
assistance request to the FTA. The request was based on lists of
bank-internal identification numbers that had been confiscated at
German UBS branches in 2012-2013 and later passed on to the French
authorities. The lists contained around 40,000 account and
bank-internal numbers relating to account holders at UBS presumed
to have tax residence in France. The French request thus aimed at
obtaining identifying information—including names, addresses
and account balances, about these account holders.

The FTA agreed to transfer the requested information to the
French tax authorities in February 2018, but UBS and various
account holders filed an appeal against the FTA's decision to
the Administrative Court, which decided in favor of the appellants.
The FTA then appealed the Administrative Court's decision
before the Supreme Court.

New Leading Case'h3>

Now, the Supreme Court has decided that the French
authorities' request is not an inadmissible fishing expedition,
but rather a permissible ''list request,'' despite
the fact that the French tax authorities did not have any concrete
suspicion of tax evasion or other tax infractions for most of the
40,000 account and other numbers concerned by the request.

UBS voiced fears that the information obtained through
administrative assistance could be used in the criminal proceedings
currently pending against the bank in France concerning alleged
abetting of tax evasion and money laundering. In an important
aspect of the decision, the Supreme Court held that the FTA has to
receive guarantees from the French authorities that the information
provided would not be used by France in violation of the specialty
principle, i.e., that any use of the information transmitted in the
criminal proceedings pending against UBS in France is excluded.

Consequences of the Supreme Court's Judgment

Although the Supreme Court's reasoning has not yet been
published, the decision is already making waves in the Swiss
banking and legal community.

One of the most important conditions for administrative
assistance in tax matters is that the information requested by the
foreign tax authorities must be foreseeably relevant. In other
words, fishing expeditions— speculative requests which have
no apparent connection to an open inquiry or investigation in the
requesting country—are not permitted. In this respect, the
Administrative Court, in its July 2018 decision, determined that
the French tax authorities had insufficiently specified what
grounds exist for suspecting that the UBS account holders had not
fulfilled their tax obligations in France. It noted that the
request was similar to a classic fishing expedition, which is
given, for example, if the foreign tax authorities request
information on all account holders that are tax residents of that
state.

Now, however, the Supreme Court has decided in favor of a very
broad interpretation of foreseeable relevance. This means that
there is a risk that foreign tax authorities will be able to submit
general requests to the FTA without having to present concrete
indications of alleged tax transgressions by account holders at
Swiss banks. Furthermore, the FTA has suspended cases in the past
year in order to await the Supreme Court decision. Now that the
decision has been handed down, the FTA will likely grant
administrative assistance in many of these cases.

The written judgment will be published by the Supreme Court in
the coming weeks and will be analyzed carefully for more
indications as to the Supreme Court's future practice in
matters of foreseeable relevance and fishing expeditions in tax
administrative assistance cases.

This column does not necessarily reﬂect the opinion of
The Bureau of National Affairs, Inc. or its owners.

Alisa Burkhard is an associate at Altenburger Ltd legal + tax,
Kuesnacht, Switzerland. Luzius Cavelti is a professor of tax law at
the University of Basel and a partner at Altenburger Ltd legal +
tax, Kuesnacht, Switzerland.

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